Stock Cycle of Bust and Bigger Boom Makes Being a Bear Deadly


How do you build a bubble? Punish anyone who dares sell.

That’s repeatedly happening in the U.S. stock market, where the S&P 500 Index has staged six discernible pullbacks since October, none going further than 4% before a rousing rally took its place. Along the way, the index has jumped 16%.

For some reason, the turn usually happens on Monday. Four straight times, that’s the day that has seen the week’s lowest print in the S&P 500, with the index climbing an average 2.2% by Friday’s close.

Stock Cycle of Bust and Bigger Boom Makes Being a Bear Deadly

Just when it looks like you can get out, the market pulls you back in.

“While we saw intermittent multiple weeks of selling along the way, successful bearish patterns were hard to come by,” said Frank Cappelleri, Instinet LLC’s senior equity trader and market technician. “There’s the makings of another one now.”

Credit the bounces to faith in coronavirus vaccines or government stimulus or just retail euphoria. Whatever driver, it highlights the career risk of being a skeptic amid a 10-month rally where $20 trillion has been added to equity values.

More investors are signing up to chase the momentum. Over the past two months, equity funds attracted $190 billion of fresh money, an all-time high, data compiled by Deutsche Bank AG showed.

Stocks sold off again Monday, with the S&P 500 falling almost 1% in the morning, before paring the decline to close down 0.66%. A Goldman Sachs Group Inc. basket of most-shorted stocks climbed 0.9%. Last week, the group jumped 10%, dealing the biggest blow to bears in seven months.

In December, the median S&P 500 stock had outstanding short interest equating to just 1.6% of market capitalization, data from Goldman Sachs showed. That matched the lowest level since at least 2004 that was recorded in October.

“Now, as in 1999, there are mounting signs of irrational exuberance in the stock market,” Yardeni Research analysts including Ed Yardeni wrote in a note. “This time, there are also more signs of ultra-stimulative fiscal and monetary policies than there were back then. The combination could be fueling MAMU—the Mother of All Meltups.”

©2021 Bloomberg L.P.

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